Growth Strategies for the MSP MarketGrowth Strategies for the MSP Market
If you are a growing MSP, driving upward of $5 million in revenue, you may be in a really great place. If you are still a smaller MSP, I think you have a couple years left to get bigger or you risk being shut out.
September 27, 2014
I was wandering around Sydney, Australia, last week when I got the news that Autotask had acquired CentraStage. My first thought was that this very likely will be seen as a turning point in the channel and the way channel partners choose their vendors over time. While Connectwise has maintained an integrated position with many RMM vendors, and Autotask will assuredly do the same, both organizations are motivated to increase their wallet share with their MSP customers and will certainly incentivize their base to convert to products that increase their revenue.
It makes sense, and it is the most logical means to grow a business in a tightly defined marketplace like the SMB channel. The end result is likely to be a trend toward MSP commoditization from a network management perspective, with more and more MSPs adopting tools and best practices that work well across the industry. The net of that is more effective MSPs, better end user results and a better overall industry reputation. Sounds pretty good, right?
Yes and no. If you are a growing MSP, driving upward of $5 million in revenue, you may be in a really great place. If you are still a smaller MSP, I think you have a couple years left to get bigger or you risk being shut out.
Here’s why: The year is 2016. Let’s say I am 40 years old, and own an MSP business doing $7 million per year in a significant regional market, and I am starting to stagnate from a growth perspective. I use Connectwise and LabTech, and I am part of the HTG family. My business processes and deliverables are very similar to that of many other MSPs across the United States, and, interestingly, many of those MSPs are closer to 60 and starting to think about retirement. This scenario is perfect for growth by acquisition, and I believe this is exactly what the market is going to look like in the near future. In this future, a smaller number of SMB-focused MSPs grow to $20 million or $30 million revenue, establish more and more vertical competencies (one of the benefits of acquisition), and have a much larger voice in the strategic thinking of the vendors that serve this market.
Economies of Scale
In addition, cloud solutions make it easier for these larger MSPs to deliver cost-effective technology solutions to the really small business segment of the market. Solutions designed to empower a mobile workforce and driven by disposable devices are very easy to manage from a central location if you have the ability to benefit from economies of scale.
At the same time, the smaller MSPs are being crushed by the same forces that are driving growth at the higher end of the market. Those large customers who were willing to engage with smaller MSPs to gain the service-level advantage are more and more often working with larger MSPs who are able to consistently perform. The smaller customers are able to work with the bigger MSPs because cloud-delivered solutions make working with that base appealing from a one-to-many perspective. Ready to launch your MSP business? Make sure you come armed with strong financial backing. The barrier to entry will be much higher, and table stakes deliverables are no longer a phone, a service vehicle and technical competence.
What does it all mean? I don’t have all the answers, but here are a few opportunistic suggestions:
If you have a growing business in the $4 million and up category, start looking long and hard at what it will take to grow via acquisition. A smart strategy here could help you quickly grow your business and become wildly successful. That having been said, it takes a high level of expertise to engage here, and that level of expertise is generally expensive.
If you have a smaller MSP, the clock is ticking in a dozen different ways. You need to grow quickly and establish a strong cash position. At the same time, you need to realize that while your customers may not be asking yet, driving them toward a set of well-managed cloud solutions will allow you to stay ahead of the curve.
The vendor landscape is continuing to evolve. More and more pressure to integrate with established platforms is in the immediate future. The MSP landscape is going to get smaller in numbers and bigger in income. A dial-for-dollars engagement strategy is probably not going to work in the future. Figure out right now how to effectively engage with synergistic vendors and build stronger, more meaningful relationships with the MSP community. If you don’t take those steps, you are going to have precious few MSPs to work with in the not-too-distant future.
Good luck out there–change is in the air, and with it comes some real opportunities for those who are prepared!
Ted Roller is vice president of Channel Development at LogMeIn. This guest blog is part of MSPmentor’s Platinum Sponsorship Program.
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